Talks to contain the crisis that began in Greece but is now threatening Italy and Spain are focused on settling a wide-ranging plan that includes boosting the firepower of a rescue fund and recapitalising banks.

Amid rising fears of Italy being sucked in, European Union leaders will also be looking to persuade Italy to radically overhaul its public finances.

The two key players, German Chancellor Angela Merkel and French President Nicolas Sarkozy, hailed overnight "progress" in efforts to finetune a comprehensive battle plan after finance ministers thrashed out a framework to protect banks after marathon talks.

Ministers clinched a deal to boost bank reserves to allow them to plug a resulting hole, worth 150 billion dollars.

They also agreed private sector lenders would have to accept losses of at least 50 percent on their Greek debt holdings, though word is still needed from the banks.

To scale up the EU\'s 440-billion-euro warchest, leaders are looking at two options: using the European Financial Stability Facility (EFSF) to offer insurance against future bond losses; and creating a spin-off fund topped up by international investors.